One of the most useful yet widely misunderstood benefits of homeownership is tax deductions. Tax deductions are a welcome gift from the government, but if you're renting, they benefit your landlord, not you.
Property tax deduction: Any money you paid during the year you purchase and in the years afterward to local state, county and city property tax assessors is tax deductible.
Mortgage interest deduction: Your mortgage interest on both first and second liens is tax deductible. Any points you paid to obtain a lower interest rate are deductible. Private mortgage insurance payments are also deductible.
Closing costs: Some fees to the mortgage lender are deductible. Ask your tax professional for guidance. You can deduct some moving expenses, such as items for home offices. Save your Hud-1 form and show it to your tax professional.
Home office deductions: If your home is your principle place of business, and you meet other IRS guidelines for home businesses, you can take a deduction on workspace dedicated to your business and no other purpose. You can also depreciate that portion of your home over 39 years. All improvements to the workspace are tax deductible. In addition, your security expenses, phones, internet costs, computers, insurance, and utilities can be deducted or depreciated according to IRS allowances. Percentages and limits apply, so talk to your tax professional.
Energy Star: If you purchased an energy efficient system or appliance for your home and it meets government Energy Starstandards, you may deduct a portion of your expenses. Save your receipts.
Property sales deductions: If you purchased a home today, occupied it as a primary residence, and sold it in two years, you could be eligible for some capital gains exclusions up to $250,000 if you're single, or $500,000 if you're married. You can even live in the home two years, rent it out for three years, and still enjoy the capital gains exclusion.
There may be many other deductions out there for you to take advantage of that are associated with your home, so save all receipts throughout the year for repairs, parts, purchases, remodeling, etc. Some allowances and special circumstances apply, so before taking this exclusion, be sure to talk to your tax professional.
Save your tax records up to seven years, because you have to be able to support the deductions you take with documentation such as receipts, credit card statements, cancelled checks, and online banking. Make sure you take deductions and depreciation only for legitimate items.
Remember all the benefits you could be getting in deductions, your landlord is currently enjoying while billing all costs associated with managing the home to you. Wouldn't you rather do that yourself?